Sebi has laid out rules for stockbrokers and depository participants for demat account opening, and any violation of those guidelines could lead to the freezing of funds.
Opening a demat account is a serious affair, given the risk of losing personal and business information to fraudsters and even regulatory breaches by broking firms. After the uproar over Angel Broking Ltd.’s (ABL) alleged violation of business rules, the danger looks real.
The Securities and Exchange Board of India (Sebi) has recently fined Angel Broking Rs 10 lakh for violating several guidelines in a probe into the company from April 2019 to December 2022.
The Sebi-registered broker, listed on both the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), had a non-settled amount of Rs 43.96 lakh involving inactive clients.
Moreover, it was found that it did not settle funds worth Rs 16.65 lakh of clients who did not trade in the last three months. Sebi’s 78-page order, cited by PTI, observed that ABL pledged clients’ securities who had a “credit balance in their ledger”. Besides, there were other breaches.
So, given such instances of rule violation, it is critical to take all the necessary steps before opening a demat account with a stockbroker. The government made it mandatory in 1996 to open a demat account to trade in stocks. Here’s what to consider before opening a demat account.
Open Account With A Registered Broker
Always open a demat account with a Sebi-registered stock broker. Remember to ask for the broker’s registration number or check online to ensure they have a valid license from Sebi.
Also, check if there is any complaint pending with Sebi against the broker. The complaints could be a lack of service standards, a breach of Sebi guidelines, and any other ongoing investigation.
Easy-To-Use Platform
Banks and stockbrokers offer demat accounts to trade in the stock market. Prior to 1996, the stock trading process was very cumbersome. However, the introduction of demat accounts made it easy for investors to trade in stocks while ensuring the safety of their securities. So, choose a platform that offers you the most convenience.
Trading, Custody, And Banking
Trading and storing securities and financial settlements are much easier if these are done with the same broker. So, if you open a demat account with a bank which is also a broker, it might be easier to link your savings bank account for stock trading seamlessly. Moreover, in this case, you may not need to approach different places if any issue arises related to settlements.
However, with online facilities, it becomes less important, and you can explore opening an account with a stock broker other than a bank that offers you good services. In short, look to open an account where the trading and settlement process remains seamless.
Demat And Other Charges
Some brokers take account-opening fees. Check brokers that might allow you to open an account for free. However, there are other charges as well. For instance, you will need to pay an annual maintenance charge (AMC) to keep the account active, charges for buying and selling securities, and fees for physical or duplicate statements, etc. But charges could differ from broker to broker. So you need to calculate the charges to determine which platform is more suitable for you.
Secure Platform
It is vital to pay attention to the robustness of the technology platform. It should not crash due to excessive trading or other reasons. You can do research before choosing the right platform.
Support Services
Finally, you would like to open an account where you get good support services. It is important when you seek help for your different transactions, and timely responses are critical. You may also find out how the broker answers your query, or how they deal with complaints, etc. Besides, you can check the products it is offering since you may invest in different products in the future.